The Japan Economic Scope--October 18, 2007

UNCLAS SECTION 01 OF 08 TOKYO 004885 SIPDIS PARIS PLEASE PASS TO USOECD STATE PLEASE PASS TO USTR SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ETRD ECON JA ZO EAGR SUBJECT: The Japan Economic Scope--October 18, 2007 ¶1. (U) This cable contains the Japan Economic Scope from October 18, ¶2007. ¶2. (SBU) Table of Contents Trade Forum ¶3. AUSTR Cutler Meets DG Otabe in Tokyo ¶4. US-Japan Launch New Reg Reform Cycle Fiscal Structure ¶5. Council on Economic and Fiscal Policy Influence Declining, Says Lawmaker ¶6. Nomura Scorns Pension System ¶7. Foreign Firms Tumble from TSE ¶8. Regional Banks Anxiously Watching for Postal Privatization Impact ¶9. GAO in Kobe Antitrust and Bid-Rigging ¶10. Judgment for Antitrust Violations in Japan ¶11. JFTC Briefs LDP on Proposed Antimonopoly Act Amendments Postal Reform ¶12. No Change on EMS Custom Procedure after Japan Post Privatization ¶13. EMS/International Air Bring 60% of Japan's Illegal Imports Energy and Climate Change ¶14. U.S. Researcher Advocates Cap & Trade at Keidanren Conference ¶15. More Carbon Cars, Less Carbon Exhaust ¶16. Industry Plans 30% More Emission Cuts ¶17. MOF Asks for More Energy Security Funding Trains ¶18. Tokyo Station to Exchange Foreign Money ¶19. Train Ticket Trouble Trips Up Commuters Security Matters ¶20. "Pacific Shield 07" WMD Drill in Japan ¶21. Stiff Gun Law Calls for $250,000 Fine Regional Realm ¶22. Aomori to Expand Apple Exports to China Technical Troubles ¶23. Next-Generation Wireless Broadband Service - Four Consortia Vie for Two Licenses ¶24. Shifting Ground for Copyrights - Cultural Affairs Agency Seeks Comments on Reports Sporting Action ¶25. Red Sox, Matsuzaka Face Elimination, Patriots Surge ¶26. MOFA Actions ¶27. This Week's Cables -------------- TRADE FORUM -------------- ¶3. (SBU) AUSTR Cutler Meets DG Otabe in Tokyo -------------- -------------- AUSTR Wendy Cutler co-chaired Trade Forum meetings with MOFA DG for Economic Affairs, Yoichi Otabe, October 18 to cover a range of issues on the bilateral agenda, including beef. She stressed the need to resolve the beef issue as soon as possible and urged the Japanese to respect international standards as set by Animal Food Health Organization (OIE),and to work closely with special envoy Richard Crowder when he arrives for talks on October ¶22. Other bilateral issues on the Trade Forum agenda included marine craft and rice. The meeting closed with an afternoon discussion of the two countries' respective FTA policies. (ECON: Nicholas Hill) ¶4. (SBU) US-Japan Launch New Reg Reform Cycle -------------- -------------- TOKYO 00004885 002 OF 008 Immediately prior to the Trade Forum on October 18, TV cameras were on hand as AUSTR Wendy Cutler and MOFA Director General Yoichi Otabe exchanged recommendations for this year's cycle of the Regulatory Reform Initiative. The Embassy is working with USTR to provide information for the press on the US recommendations, including links to the USTR press statement and the recommendations themselves. (ECON: Nicholas Hill) -------------- FISCAL STRUCTURE -------------- ¶5. (SBU) Council on Economic and Fiscal Policy Influence Declining, Says Lawmaker -------------- -------------- With the opposition Democratic Party of Japan (DPJ) exercising more influence in Diet discussions, PM Fukuda has been forced to shift economic policymaking to party structures. Consequently, the Council on Economic and Fiscal Policymaking's (CEFP) influence is declining, a Liberal Democratic Party (LDP) Diet member told us this week. The representative cited last week's formation of a cabinet-level group to formulate regional revitalization plans (and a parallel LDP committee) as an example of the shift. (ECON: Marc Dillard) ¶6. (U) Nomura Scorns Pension System -------------- -------------- With comments that underscored both anxiety about Japan's overall pension situation as well as increasing calls for Japan to upgrade its financial sector competitiveness, the head of Nomura Asset Management (NAM) - Japan's largest asset manager - derided Japan's defined contribution (401k equivalent) pension system as "useless." He lamented that "the international headquarters of investment banks are in London and the regional headquarters are in Hong Kong or Singapore. Tokyo is a "national headquarters, not even a regional headquarters," he said. In comments to the Financial Times, NAM President Takumi Shibata noted that, not only is pension reform "crucial", but that "it's close to the last chance," for Japan to become a globally competitive financial services center. (FINATT: Mateo Ayala) ¶7. (U) Foreign Firms Tumble from TSE -------------- -------------- Despite efforts to assume a global role, the Tokyo Stock Exchange (TSE) is losing centripetal force for foreign firms. The latest in a trend, German automaker Volkswagen recently announced a decision to delist its shares from the TSE. From a peak of 127 foreign companies in 1991, there are now only 24 foreign companies listed on the TSE following delisting by major names such as Nestle, Volvo, Phillip Morris, P&G, Apple, IBM, Motorola and Deutsche Bank. While the TSE has been enthusiastic about attracting companies from emerging economies - in particular from China and India - after the first Chinese company was listed in August, no subsequent listings from either country have followed. (ECON: Satoshi Hattori) ¶8. (SBU) Regional Banks Anxiously Watching for Postal Privatization Impact -------------- -------------- Regional Financial Institutions in Kansai are carefully watching "Yucho Bank," which was privatized as part of Japan Post liberalization on October 1. According to Nikkei's Kansai edition, the total reserves of Yucho Bank in the Kansai (six prefectures) is approximately 34 trillion yen ($293 billion),and it overwhelmingly exceeds the 5 trillion yen ($43.1 billion) reserves of Kyoto Bank, the largest Kansai regional bank. Although there are only 44 directly-managed Yucho Banks in the Kansai, the number of post offices and outsourced businesses of TOKYO 00004885 003 OF 008 Yucho Bank is approximately 3,100, almost three times the total number of branches of regional banks. Nobuyoshi Namba, Director of Osaka City Credit Cooperatives Research Institute, said that the financial operations of Post Offices extend to rural areas, so Yucho will have a larger impact on - and impinge on the customer bases of - regional banks and credit cooperatives rather than mega banks operating in urban areas. To compete with Yucho, many regional banks are introducing new products, but they don't feel that it is fair competition. Osaka City Credit Cooperatives has started deposit accounts with double the going interest rate this week. (OSAKA-KOBE: Phil Cummings/Naomi Shibui) ¶9. (SBU) GAO in Kobe -------------- -------------- U.S. Government Accountability Office (GAO) Assistant Director and Senior Analyst visited Kobe and Tokyo to find best practices from the 1995 Kobe Earthquake reconstruction, which could apply to the long-term Hurricane Katrina reconstruction in New Orleans and the Gulf Coast. Kobe Chamber of Commerce and Industry Managing Director, Masaaki Yabuno, recounted that the damage to the Kobe economy was 10 trillion yen ($86.2 billion). In the two years following the earthquake, recovery was smooth, but the recession and yen appreciation after 1997 hampered Kobe's economic recovery. Kobe COCI criticized the GOJ for shooting down its plan to make Kobe a "free port" which would compete with other Asian major ports. Yabuno added that large companies in Kobe such as Kobe Steel and Kawasaki Heavy Industry completely recovered from the damage and experienced high demand, but a large number of SMEs in Kobe are still struggling. (OSAKA-KOBE: Phil Cummings/Naomi Shibui) -------------- ANTITRUST AND BID-RIGGING -------------- ¶10. (U) Judgment for Antitrust Violations in Japan -------------- -------------- The Nagoya District Court on October 15 convicted five senior officers of general contractors for being involved in dango (bid-rigging) on Nagoya subway construction projects in 2006. This was the first case in which general contractors were found guilty of antitrust violations in Japan. Not coincidentally, general contractors in Central Japan are known for their strong and close ties. The judge pointed out those companies had constantly engaged in dango for over thirty years to keep up profit margins and parcel out business. Each of the five individuals was given a suspended sentence of 1.5 to 3 years, and their firms were each fined from 100 to 200 million yen ($860,000 to $1.7 million). The defendants' attorneys had argued that the cooperation among the general contractors had certain merits in that it helped avoid a lack of bids due to excess competition and to maintain a high quality of public works. (NAGOYA: Tamiki Mizuno) ¶11. (SBU) JFTC Briefs LDP on Proposed Antimonopoly Act Amendments -------------- -------------- In an October 16 briefing of the ruling Liberal Democratic Party's (LDP) committee overseeing implementation of the Antimonopoly Act (AMA) -- Japan's main antitrust law -- the Japan Fair Trade Commission submitted a set of recommendations for amendments to the AMA calling for possibly raising the upper limit on fines against firms that play a leading role in plotting anti-competitive behavior, while making more firms eligible for leniency by voluntarily reporting their illegal conduct. The Commission also seeks to expand the range of activities subject to punitive surcharges under the AMA to include cases in which large firms exploit their market power to force smaller businesses to cut their prices or provide discounts in the form of additional services and to cases of "unfair trade practices" such as fraudulent product labeling or deep discounts. The USG has expressed its concern to the JFTC that applying surcharges on these types of behavior, as opposed to the current system where the Commission can order TOKYO 00004885 004 OF 008 companies simply to halt the actions concerned, could have a chilling effect on vigorous competition that benefits consumers. The JFTC plans to present the proposed amendments to the Diet next spring. (ECON: Chris Wurzel) -------------- POSTAL REFORM -------------- ¶12. (SBU) No Change on EMS Custom Procedure after Japan Post Privatization -------------- -------------- Customs officers told embassy officials their procedures have not been affected by privatization, during a visit to their EMS handling site October 17. Currently, assessed declaration system allows EMS personnel to deliver packages requiring duty to recipients and accept the tax payment upon delivery. Subsequently, they can deliver more quickly than commercial services. For non-EMS items, customs officials mail a post card indicating the cost of the tax and the item is released for delivery when the tax is paid. Officials explained that in a year and half, this system will be standardized. Duty for EMS packages will be have to be paid for the package to be released. Officials explained that 10 percent of packages received are taxable. Tokyo Customs at Tokyo International Post Office handles approximately 10,000 parcels a day during normal business hours. (ECON: Junko Nagahama) ¶13. (U) EMS/International Air Bring 60% of Japan's Illegal Imports -------------- -------------- Tokyo Customs officials said 60 percent of illegal imports are handled at the Tokyo International Post Office where all EMS and international air parcels are handled. Approximately 80 percent of all the illegal imports are of IPR violations, mainly from South Korea and China. (ECON: Junko Nagahama) -------------- ENERGY AND CLIMATE CHANGE -------------- ¶14. (SBU) U.S. Researcher Advocates Cap & Trade at Keidanren Conference -------------- -------------- An emissions cap-and-trade scheme is generally considered to be the "ultimate goal" in the United States for action on climate change, according to University of Georgia law professor and former advisor to the State Department and United Nations, Daniel Bodansky. Speaking at an October 15 Keidanren conference, Bodansky added that an industry sector approach is "second-best" for broadening participation and simplifying negotiations. Bodansky's comments fueled intense discussion among some 300 participants from industry, government, and research institutes, many of whom strongly oppose cap and trade and prefer a sectoral approach with minimal government regulation. Keidanren used the event to distribute its proposal for a post-Kyoto climate framework based on a flexible co-existence of the environment and economic growth and innovative technological development. (ECON: Keiko Kandachi/Toby Wolf) ¶15. (U) More Carbon Cars, Less Carbon Exhaust -------------- -------------- Committing about 20 billion yen ($175 million) to an aggressive strategy to expand its share of the advanced materials auto parts business, Toray Industries announced on October 9 plans to build an automotive research and manufacturing center in Nagoya, to open in June 2008 and be fully complete by 2010. The global leader in its field, Toray currently controls about 30 percent of the world carbon composite market. The company's 16-year Boeing 787 Dreamliner contract alone is reportedly worth more than $6 billion. Targeting low weight, hybrid, and fuel-cell vehicles, TOKYO 00004885 005 OF 008 Toray aims to increase its annual automotive sector sales from 124 billion yen ($1.1 billion) in 2006 to 350 billion yen ($3 billion) by 2015. Carbon fiber parts can be up to 75 percent lighter and ten times stronger than similar steel parts, but currently cost up to ten times more. (NAGOYA: Dan Rochman) ¶16. (U) Industry Plans 30% More Emission Cuts -------------- -------------- Thirteen Japanese industrial sectors will be called on to reduce greenhouse gas (GHG) emissions by nearly 30 percent from the levels of Nippon Keidanren's voluntary action program according to a front-page report by Nikkei. Nikkei and GOJ sources said that METI and MOE announced the plan at a joint committee meeting October 11. A METI official said the ministry is asking for the additional emission cuts in order to help Japan meet its Kyoto Protocol commitments. Japan's 2005 GHG emissions were 7.8 percent higher than the 1990 baseline, making a 13.8 percent cut necessary to reach the target. (ECON: Keiko Kandachi/Toby Wolf) ¶17. (U) MOF Asks for More Energy Security Funding -------------- -------------- In the budget currently being considered by the Ministry of Finance, the Agency for Natural Resources and Energy (ANRE),a division of the Ministry of Economy, Trade and Industry (METI),has requested overall funding of 828 billion yen ($7 billion),an increase of 81 billion yen ($692 million) over last year. The budget seeks an increase of 3.9 billion yen ($33.3 million) for geological surveys. It also requests 13.2 billion yen ($112 million) in new financing for "strategic resource diplomacy." Japan Oil, Gas and Metals National Corporation (JOGMEC),which provides loans and debt guarantees to companies to invest in energy projects, will raise its equity participation cap from 50 percent to 75 percent. Itochu Co., Ltd has already secured loans from JOGMEC to invest 4.6 billion yen ($39.3 million) for a 75 percent share in a natural gas exploration project in Namibia. Mitsui Co., Ltd. likewise will invest 8.6 billion yen ($73.5 million) in a project in the Gulf of Mexico. The country's new national energy plan calls for Japan to develop 40 percent of its energy independently by 2030. (ECON: Sally Behrhorst/Eriko Marks) -------------- TRAINS -------------- ¶18. (U) Tokyo Station to Exchange Foreign Money -------------- -------------- East Japan Railway Co. plans to offer foreign exchange services at Tokyo Station to overseas visitors by the end of October, the Nikkei reported. The major terminal is used by many foreigners because of lines connecting it to Narita and Haneda airports. A counter on the station's first underground floor will offer 31 currencies, including the dollar, the euro and the yuan. There are also plans to create a concierge desk adjacent to the counter. This desk will provide tourist information and give station directions to foreign visitors. (ECON: Charlotte Crouch) ¶19. (U) Train Ticket Trouble Trips Up Commuters -------------- -------------- A software bug caused 4,378 automated ticket gates made by Nippon Signal Co. to shut down in the Tokyo area during the October 12 morning commute, according to a Nikkei report. The trouble stemmed from systems that support a variety of smart card rail pass formats. Prior to the technical troubles, Metro officials impressed on Econoff the unique efficiency of their system specifically tailored to move more than 1 million passengers during one hour of morning rush hour commute. TOKYO 00004885 006 OF 008 The system was back up and running by noon, but the shutdown affected some 2.6 million commuters at stations operated by 16 different rail companies. (ECON: Charlotte Crouch) -------------- SECURITY MATTERS -------------- ¶20. (U) "Pacific Shield 07" WMD Drill in Japan -------------- -------------- Japan hosted a three-day, seven-country Proliferation Security Initiative (PSI) drill, Nikkei and Yomiuri reported October 13. Australia, Britain, France, Japan, New Zealand, and the U.S. participated in the exercise. Another 34 European and Middle Eastern countries observed from a Maritime Self Defense Forces (MSDF) vessel. China and Korea did not participate. On the first day, the participants chased a ship scripted as a "suspicious vessel" which could have been carrying WMD. Japanese MSDF inspectors boarded the ship as part of the drill. On the second day, six countries demonstrated a search for mock suspicious materials hidden on a vessel berthed at a Yokosuka Warf. On the final day of the exercise, Japanese Ground Self-Defense Forces conducted an emergency response to a mock chemical container leak at a Yokohama port. (ECON: Eriko Marks) ¶21. (U) Stiff Gun Law Calls for $250,000 Fine -------------- -------------- The government approved a bill on October 16 to revise the Firearms and Swords Control Law and stiffen penalties that will now include a maximum 30 million yen ($250,000) fine for anyone who fires a weapon on behalf of organized crime, according to a Yomiuri Shimbun article. The bill, which was approved at a Cabinet meeting, is to be submitted to the current extraordinary session of the Diet, and the government hopes to have it come into force by the end of the year. MOF Customs officials recently explained to us that they have been under increased public anti-gun pressure since Nagasaki Mayor Iccho Ito was shot dead by a gang member in April. (ECON: Charlotte Crouch) -------------- REGIONAL REALM -------------- ¶22. (U) Aomori to Expand Apple Exports to China (U) Representatives from Aomori Prefecture's apple industry traveled to northeast China's apple growing region in early October to study the possibility of increasing apple exports there. A trade delegation led by the mayor of Hirosaki, Aomori met with government officials from the city of Dalian as well as several Chinese agriculture and trade related entities. They also visited major apple farms, fruit canneries and local markets in the Dalian area. Aomori Prefecture is the largest producer of Japan-grown apples, with local farmers producing 424,900 tons annually. Farms around the city of Hirosaki grow 70 percent of the prefecture's apples. Currently, 96 percent of Aomori's apple exports go to Taiwan. In 2005, Aomori sold 16,378 tons of apples in Taiwan valued at $43 million. By comparison, Aomori sold only 132 tons of apples in mainland China valued at $508,620. With no growth in Japan's domestic apple market, Aomori apple producers hope that mainland China's growing middle class will develop a taste for their apples. It remains to be seen, however, if Chinese consumers will be willing to pay Japanese prices for the higher cost apples. (SAPPORO: Ian Hillman/Yumi Baba) -------------- TECHNICAL TROUBLES -------------- TOKYO 00004885 007 OF 008 ¶23. (SBU) Next-Generation Wireless Broadband Service - Four Consortia Vie for Two Licenses -------------- -------------- Three corporate groups applied for licenses to offer next-generation high-speed wireless broadband services using 2.5 GHz bandwidth, submitting applications on October 11 to Ministry of Internal Affairs and Communications (MIC). These groups will vie with Willcom Inc., a PHS (personal handy-phone system) operator that had already filed. MIC plans to grant two licenses by the end of this year. The three consortia all plan to use WiMAX technology, rather than DSL or cable. The groups include, among others: Acca Wireless, teaming up with Acca Networks Co. and NTT DoCoMo Inc.; Open Wireless Network, led by Softbank Corp. and eAccess Ltd; and Wireless Broadband Kikaku, invested in by KDDI, Corp., Kyocera Corp, Intel Capital, and East Japan Railway Co. These consortia also represent the latest chapter in the sparring between corporate Japan and the GOJ. The GOJ, in an effort to further open markets and encourage new entrants, had excluded the established carriers from the bidding. The big players are now trying to work around this inconvenience by partnering with smaller firms. (ECON: Scott Smith/Kaoru Nakata) ¶24. (SBU) Shifting Ground for Copyrights - Cultural Affairs Agency Seeks Comments on Reports -------------- -------------- Promotion of digital content, copyright terms, fighting piracy, technological protection measures, and remuneration for rights holders (collecting levies) are among the topics discussed in two committee reports prepared for the Cultural Affairs Agency (Bunkacho). These committees are among numerous technical groups discussing aspects of Japan's competitiveness and its place in the digital world. The reports of these particular groups will also inform GOJ efforts as it prepares for the first major revision to Japanese copyright law in many years. The Cultural Affairs Agency (Bunkacho) is soliciting public comments on reports issued by two of its advisory committees: the Private Sound/Visual Recording Subcommittee and the Legal Affairs Subcommittee, reporting to the Copyright Affairs Committee, under the Cultural Affairs Council. These are interim reports and Bunkacho is soliciting comments for the period 10/16-11/15/07. For more information on points and issues concerning private sounds and visual recording click here. To view a report by the Legal Affairs Subcommittee (in Japanese) click here. (ECON: Scott Smith/Kaoru Nakata) -------------- SPORTING ACTION -------------- ¶25. (SBU) Red Sox, Matsuzaka Face Elimination, Patriots Surge -------------- -------------- A dejected Daisuke Matsuzaka sat catatonic in front of his locker as gloom filled the baseball world. The Boston Red Sox and their star - but all too wild - right hander from Yokohama, Japan stood on the precipice of disaster. The Red Sox are one game away from elimination in the American League championship series after losses by Matsuzaka and Tim Wakefield put them down three games to one to an unknown team from Cleveland. The consolation for Red Sox fans is that the New England Patriots, who do not have any Japanese imports on their roster, continued to roll - crushing and humiliating the Dallas Cowboys October 14 in the stadium that Tom Landry built, 48-27. (ECON: Nicholas Hill) ¶26. (U) MOFA ACTIONS The 3rd Round of Negotiations on the Japan-Switzerland EPA will be held from October 15 to 19 in Yokohama. Click here for more information from MOFA's website. Back to Top ¶27. (SBU) THIS WEEK'S CABLES TOKYO 00004885 008 OF 008 4855 Delivery of Invitation to Pakistan-Afghanistan Development Meeting 4854 DPRK 4848 Japan Cancels Burma Human Resources Center Aid Grant 4831 Blue Lantern Finding Source of Unauthorized USML Scopes in Tokyo 4830 An Industrialist with Political Connections - JR Central President Kansai Predicts Lost Year for Japanese Reforms 4827 Japanese Government on Support for Jordanian Debt Buyback 4816 Senior LDP Leader Offers Mixed View on OEF Extension 4814 Japanese Thinking on Cutting Tariffs on Goods That Can Reduce Greenhouse Gases 4808 CCAMLR: Japan's Response to U.S. Objectives at the 26th Meeting 4801 Bilateral Information Security Task Force Advances Terms of Reference Milestones on Information Security 4797 Japan: Possible Next Steps on Burma ¶28. (U) This SENSITIVE BUT UNCLASSIFIED e-newsletter from U.S. Embassy Tokyo's Economic Section, with contributions from the consulates, is for internal USG use only. Please do not forward in whole or in part outside of the government. The Scope is edited this week by Charlotte Crouch (CrouchCA@state.gov) and Joy Progar (ProgarJ@state.gov). Please visit the Tokyo Econ Intranet webpage for back issues of the Scope. Apologies, this option is only available to State users. Please contact Joy Progar if you are from a different agency and are interested in a back issue. SCHIEFFER